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First Investor Takes Proxy Access Out For a Spin; Tea Leaves Muddled on “Fix It” Proposals

CORPORATE TRANSACTIONS BLOG

Nov 14, 2016 / by

FIRST INVESTOR TAKES PROXY ACCESS OUT FOR A SPIN; TEA LEAVES MUDDLED ON “FIX IT” PROPOSALS

GAMCO Investors, Inc., an investment firm headed by
billionaire investor Mario Gabelli, filed a Schedule 13D announcing what
appears to be the first use of a proxy access bylaw to nominate a director
candidate. Entities controlled by Gabelli beneficially own 7.81 percent of the approximately
85 million outstanding shares of National Fuel Gas Company, an
integrated energy company, and have held at least 3 percent for three years.
GAMCO announced its intention to nominate Lance A. Bakrow, the co-founder and a
director of Greenwich Energy Solutions, for election to the National Fuel Gas
board. According to GAMCO, Bakrow’s “skill sets and highly relevant business and financial
experience” would be “extremely valuable to the Issuer and GAMCO is confident
that its Nominee will have an immediate positive impact on the Board.”

The move is not the first attempt by
GAMCO to engage with National Fuel Gas. In 2015, GAMCO submitted a shareholder
proposal calling for National Fuel Gas to engage an investment banking firm to
spin off the company’s utility segment into a separate publicly-traded company.
National Fuel Gas included the proposal in its proxy statement, and the
company’s stockholders voted it down by a sizeable majority.

The use of a proxy access bylaw by
an activist investor is somewhat surprising, because activists are often able
to engage company management with a much smaller investment than the 3 percent
ownership threshold and with a shorter lead time than the typical three-year
holding period required under many proxy access bylaws. In some ways, however,
Gabelli is different from the typical activist investor (if such a creature
exists). GAMCO is a publicly-traded company, listed on the New York Stock
Exchange, and Gabelli’s funds are also not hesitant to take long-term positions
in the companies in which they invest.

Staff
Leaves Shareholder Proponents Guessing on “Fix It” Proposals

In late July 2016, the SEC’s Corporation
Finance staff did not allow H&R Block to exclude a resolution from activist
Jim McRitchie calling on the company to amend its access bylaws on substantial
implementation grounds. McRitchie himself described the staff’s action as a
“breakthrough” on what investor advocates refer to as “proxy access lite,” in
which the bylaws impose ownership thresholds and holding period requirements
that effectively negate the possibility of investor access to the proxy. The
staff reached similar conclusions in responses to submissions by James McRitchie and John Chevedden to Walgreens Boots Alliance, Inc. (Nov. 3, 2016), Whole Foods Market, Inc. (Nov. 3, 2016)
and The Walt Disney Co. (Nov. 3, 2016).

Investor advocates are scratching
their heads, though, at the staff’s position in Oshkosh Corp. (Nov. 4,
2016). John Chevedden
submitted six proposed changes to the company’s current proxy access bylaw. The
company argued that it substantially implemented the proposal by adopting three
of the six measures, including reducing the ownership threshold to 3 percent.
Oshkosh did not, however, implement the proposals on the limits on shareholder
aggregation and the number of nominees that may be included in the proxy.
According to the company, “the Amended Proxy Access Provision significantly
expands the ability of shareholders to use proxy access and thereby satisfies
the Proposal's essential objective.” The staff concluded that “it appears that
Oshkosh's policies, practices and procedures compare favorably with the
guidelines of the proposal.”

As is usually the case, sophisticated tools are required
to read the staff’s intent behind any particular no-action response, such as a
Ouija board, tarot cards or tea leaves. Companies and shareholder activists are
left to question whether the move to the three percent threshold was
determinative, or if it was somehow significant that the company implemented
half of Cheveddon’s proposals. The staff may also be using some other form of
holistic analysis to determine if company actions reached the critical mass necessary
to achieve “substantially implemented” status.

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